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Southern Cross University

[email protected]SCU School of Tourism and Hospitality Management

1996

Club gaming in New South Wales, Australia: the transition to industry maturity Nerilee Hing Southern Cross University

Publication details Hing, N 1996, 'Club gaming in New South Wales, Australia: the transition to industry maturity', UNLV Gaming Research and Review Journal, vol. 3, no. 1, pp. 13-32. The abstract and pdf of the published article reproduced in [email protected] with the permission of UNLV Gaming Research and Review

[email protected] is an electronic repository administered by Southern Cross University Library. Its goal is to capture and preserve the intellectual output of Southern Cross University authors and researchers, and to increase visibility and impact through open access to researchers around the world. For further information please contact [email protected]

Club Gaming in New South Wal€sr Australia: The Transition to

Industry Maturity

I{erilee Hing Lecturer in Club Management and Food Service Management Southern Cross University Lismore, Australia

Abstract The New South Wales club gaming industry has existed for forty years since the introduction of slot machines in 1956 and has witnessed the impact of changing legal, competitive, social, economic, and technological factors on its competitiveness. Using Michael Porter's framework of competitive forces (1980), this paper analyzes the industry's life cycle in terms of entry barriers, industry rivals, customer markets, and substitute products. This analysis provides evidence that the industry has evolved from an emergent industry to one which is now approaching maturity. Industry cooperation, strategic management, and a refocusing of marketing efforts are suggested as suitable responses by club management to the intensifying competitive forces accompanying industry maturity.

lntroduction The primary focus of this paper is to analyze the evolution of the slot machine gaming industry in registered clubs in New South Wales (NSW), Australia,

tracing its development through the life cycle stages from inception to matuntl. Since slot machines, or poker machines as they are called in Australia, u'ere legalized some 40 years ago, changing legal, competitive, social, economic, and technological factors have resulted in the transition of NSW club gaming frorn ar emergent industry to one which is now approaching maturity. Using llichaeL Porter's framework of competitive forces (1980), this evolution is analrzei rl terms of changing entry barriers, industry rivals, customer markets. and substiru:: products to identify key developments in the industry and furure chalienses f,:: club management. While it is beyond the scope of this paper to ofter prescni-.:": recommendations for adaptation to these challenges. alvareness of changrr-s scL::;s of competition is a first step towards an appropnate response b1' rndir-iCual ;iu:. Ausrraiia. to industry maturity. Figure 1 shows the location of NS\\'

"r'ithin

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Figure 7 Map of Austtalia

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Porterts Framework of Competitive

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The life cycle concept has been a watershed for understand-A"c.T. (qr$
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Club Gaming in New South Wales, Australia: The Transition to Industry Maruriry

Figure. 2 Expected Changes in Competitive Forces During the Lifecycle of the NSW Poker Machine Gaming Industry

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and !efe6 to the net amomt spent by pople who play poker mdrinc or, altemtively, the gross profit emed by poker mchine openton, adjsted for inflation The Comission has elculated poker ruchine expmditure by multiplying poker mchine tumover by the iegal r€tention nte of 15%. With mny clubs ploviding a retum to players $eate! thm 8570, tross profit here is somtrhat oyer66mated.

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Brief History of the NSW Club Industry The Registered Clubs Association of NSW (RCA) defines clubs as "groups of people sharing a contmon interest who have bonded together to pursue or promote that interest" (19943). The majority of NSW clubs are founded on members' sporting interests or returned service affiliation, although, ethnic, religious. workers, social, and community clubs are also common. For registration. the marr requirements under the Corporations Law (NSW) and the Registered Clubs {ct (NSW) are that a club must be incorporated, be conducted in good faith. and c;cupy bona fide premises for the purposes of the club which are financed b1 clu: funds. According to the most recent industry statistics. there are cunentl;' ..5:registered clubs in NSW, generating an annual tumover of approrr-naiei;' - l 'r--lion Australian dollars (A$) and with a collective membership of arou:d l.-< n,-lion. Furtherrnore, NSW clubs contribute over AS-?50 million in state ::-r:s. -\S 3 - million of which comes from the revenue raised by near11' 60.000 poker n:achi:ies In addition to taxation revenue, around 50 percent of NS\\' poker machns re', .nue provides community support for charities, sport, the aged and handicappeci and Gaming Research & Review Journal - Volume 3, Issue

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club projects for its members (RCA, t994:5)' Additional revenue accrues from otheitypes of club gaming, such as keno, TAB, bingo, and raffles but is a mere fraction of that raised by poker machines" Clubs have existed in NSW since the early colonies, when they were modeled on British gentlemen's clubs and catered exclusively to the elite' While the NSW Liquor Act licensed 85 clubs for trading in 1905, it was not until the end of WWII and the return of ex-service personnel that clubs began to gain a wider acceptance in the community. Indeed, in only the last fifty years, the number of NSW registered clubs has grown from 85 to over 1,500 (RCA, 1994:3-5). This phenomenal growth can be attributed to many changes in competitive forces influencing the industry in the postwar yearsburi.rg the first half of this century, pubs were virtually the sole public establishments catering to the social consumption of alcohol' However, by the end of W-WII, the lack of service and the "6 o'clock swill" in NSW pubs, combined with the shortage of beer and a resulting black market, had tried the patience of ordinary social drinkers (Caldwell, 1972:69). Exploited by hoteliers and breweries, the demand for better leisure establishments increased, particularly as disposable incomes and consumer spending boomed with dramatic improvements in economic conditions. Amendments to the NSW Liquor Act in 1946 allowed the authorization of another 265 clubs, giving the people of NSW leisure establishments that better met their needs. No longer were clubs privileged domains for "gentlemen," clubs' but returned soldiers, sporting, and other groups also founded and patronized

By 1958, with further amendments to the NSW Liquor Act, the number of

NSW registered clubs had grown to 1,050. Clubs were now lecognized as the focal point for a variety of entertainment, sporting, and social activities. Furthermore, because clubs were considered private rather than public organizations, they retained the important privilege of being able to serve liquor outside hotel trading hours-after 6 p.-. and on Sundays. It is not surprising then that NSW residents became members and supporters of registered clubs' The competitive edge gained by clubs in the service of alcohol, however, pales compared to the advantages enjoyed from their exclusive right to operate poter mactrines. While poker machines were not legalized in clubs until 1956, various types of machine had been used in clubs, probably since about the 1900s (Caldweil, l97Z:95).In the first half of this century, the government's attitude to

poker machines was one of ambivalence, with intermittent steps taken to elimithe legalnate them. However, in the early 1950s, the clubs themselves lobbied for rzation of poker machines, offering an annual tax on each machine and arguing financial hardship and loss of jobs if they were to be removed' Despite continued objection by chuich groups and the hotel industry, the State Government legalized poker machines in NSW clubs in August 1956, with the Premier noting that to prohibit poker machines would jeopardize the existence of many clubs and the they provided (cited in Caldwell, 1972:100\' imployment The legalization of poker machines gave NSW clubs a monopoly on gaming machines for many yezus, with on-course bookmakers and state-run lotteries the only other forms of legal gambling anywhere in Australia until 1976' Table 1 rdentifies key milestones in the development of the Australian gaming industry, '",. htch currenti-v encompasses poker and electronic gaming machines, lotteries, .::--l-::-:. Lotto, instant lottery, pools, bingo and minor gaming, and casino gam: : l.:.. 1 t: ji:ares that the last twenty years have witnessed the proliferation of

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Club Gaming in New South Wales, Austalia: The Transition to Industry Maturity

additional forms of gambling, eroding the market share of club poker machine gaming and curtailing growth in club poker machine revenue. The nature and implications of such rapid change in the competitive environment for club gaming is discussed in more detail below.

Table 1. Milestones in the Development of the Australian Gaming Industry Introduction of

Year

...

1897 1920 1931 1933 1954 1956 1966 1972 19'73 1974 l9'15 1976 1978 1979 1980 1981 1982 1984 1985

Tattersall's State Lottery in Tasmania Queensiand State Lottery (Golden Casket) NSW State Lottery Western Australian State Lottery Tattersall's Lottery in Victoria

1986 1987 1990 1991 1992 1993 1994 1995

Video gaming machines in Tasmanian casinos Gaming machines in ACT hotels Poker machines in Northem Territory Poker machines in Queensland, Keno in NSW

Poker machines in NSW clubs South Australian State Lottery

Lono in Victoria Lotto in South Australia, Wrest Point Casino in Tasmania Soccer Pools in Victoria Soccer Pools in NSW, Queensland & Tasmania Poker Machines in ACT clubs, Lotto in ACT Lotto in Westem Australia & Northem Territory, Instant Lottery in South Australia, Soccer Pools in Northern Territory Lotto in NSW, Instant Lottery in Northem Territory, Soccer Pools in ACT, Darwin Casino in Northern Territory Soccer Pools in South Australia Lono in Queensiand, Instant Lottery in Victoria, Tasmania, ACT Instant Lottery in NSW & Westem Australia Gaming machines in NSW hotels, Instant Lottery in Queensiand, Soccer Pools in Western Australia Jupiters Casino in Queensland, Adelaide Casino in South Austraiia, Burswood Casino in Westem Australia

Poker machines in Victoria, Casino Canberra in ACT, Keno in South Australia

Keno in Victoria Poker machines in South Australia, Melboume's Crown Casino in Victoria with 1,300 poker machines, increasing to 2,500 by 1996 Brisbane Casino in Queensland, Sydney Harbour Casino opened in September. with 1,480 poker machines

This brief history of the NSW club industry and its phenomenal srou'th reflect numerous changes in its external environment which have helped tc de::imine the development and current status of the industry. ln particuiar. rhe i:-ir-:: of the NSW club industry on poker machines for about 70 percent of ls ::'. -.-. -: (Department of Gaming and Racing, 1995:4) implies that comperitire ::::=-. :.-fluencing club gaming have probably been the most influeniral in shac::: ::-3 ::-dustry. Changes in these competitive forces will nori be rerre,.rea ir::-:--; -Porter's model (1980), with attention to entry bamers. rndusrn .c:t'r:::::t:,:", :*-itomer markets, and substitute products.

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Entry Barriers to Club Gaming Entry barriers largely determine the number of potential entrants to an industry and thus the eventual competition posed by intra-industry rivals. Porter (1980:7-17) identifies six factors which can prevent or encourage entry to an industry by new organizations: economies of scale, product differentiation, capital requirements, cost disadvantages independent of size (such as experience, expertise, proprietary technology, favorable locations, etc.), access to distribution channels, and government policy. In an emerging industry, entry barriers are low, encouraging many new entrants and rapid industry growth. Once poker machines were

legalized in NSW clubs in 1956, and with amendments to government legislation in the following three years allowing the registration of additional clubs, conditions were ripe for the entry of a multitude of new competitors to the NSW club industry. Indeed, 700 additional clubs were registered in NSW between 1955 and 1958, an

. . . potential entrants to the NSW

club gaming industry are currently facing declining market share in terms of gaming expenditure on

pokermachin€s...

industry growth rate of200 percent

(RCA, 1994:3). Following Porter's (1980) model, these new entrants were encouraged by the small number and size of existing clubs, low customer loyalty with club membership then encompassing only a small proportion of the population, the opportunity for raising capital requirements from membership fees and poker machine revenue, little experience or expertise in the existing industry, and numerous locations with unmet demand for club facilities and services. The phenomenal increase in the number of NSW clubs leveled off after 1 95 8. Since then, the average annual growth rate has been around 1.4 percent, compared to about 50 percent in the years immediately following the introduction of poker machines. Indeed, the number of registered clubs in NSW has actually declined in recent years, with some smaller clubs finding it increasingly difficult to survive (RCA, 1990:1994). To analyze the growth of the NSW club gaming industry, the number of poker machines and their annual turnover can be examined. In 1993, the number of poker machines in NSW clubs totaled 58,734 (RCA, 19945), a tenfold increase on the 5,596 machines licensed in 1957 (Caldwell, 1972:145).Unfortunately, official detailed statistics on Australian gambling turnover have only been collected since 1972. while these identify a growth in real poker machine turnover from A$14i9.5 million tn 1972---73 to A$3495.8 million in 1993-94. they also ind! cate that expenditure on poker machines as a percentage of total NSW gaming expendicure has declined from 91.3 percent inl974---75 to 83.9 percent in 19939-{ iTasmanian Gaming Commission, 1995 :l 42; 215). Thus. ootential entmnts to the NSW club gaming industry are currently fac:: j::h:::ls na-rket share in terms of gaming expenditure on poker machines, as

CIub Gaming in New South Wales, Australia: The Transition to Industry Matuiry*

well as numerous higher entry barriers than those faced by their counterparts forty years ago. These include strong customer loyalty to existing clubs with a collective membership of 2.5 million; the need for high capital investment, with many larger clubs having over A$1 billion in assets providing high quality facilities and services for often tens of thousands of members; considerable experience and expertise amongst existing industry players; and more stringent government legislation regarding new developments and licensing requirements. These higher barriers to entry provide one indication of the increasing maturity of the industry.

Intensifying Industry Competition In addition to higher entry barriers, competition among existing players in the NSW club gaming industry has intensified. Porter (1980:18-21) maintains that intense rivalry occurs in industries where competitors are numerous or are roughly equal in size and power, industry growth is slow, the product lacks differentiation or switching costs, fixed costs are high or the product is perishable, products are produced in large amounts at a time, exit barriers are high, and rivals have diverse strategies, origins, and personalities. Many of these characteristics are evident in the NSW club industry. For example, overthe last forty years the industry has grown from one with few competitors to many, with no single club currently having dominant market share. Within their geographic markets, price competition, new product introductions, and advertising campaigns are used in attempts to jockey for a favorable position. With little product differentiation possible in the poker machines themselves, clubs must attempt to increase player participation by purchasing the latest types of machines, by increasing players' percentage returns from the machines, by holding frequent and innovative poker machine promotions, and by improving the physical environment in which the machines are played. Clearly, the poker machine product is also a perishable one, with the time they are idle being nonrecoverable. Thus, many clubs subsidize their food and beverage prices with poker machine revenues to increase membership, visitation, and machine play. Percentage returns to players are often set at 90 percent to 95 percent, even though legislation requires only 85 percent. Ongoing machine replacement programs are common to keep up with latest trends. Frequent renovations seek to improve the physical environment in gaming rooms. Exit barriers from the industry are also high, particularly as NSW clubs tend to purchase rather than lease the machines, and operate in purpose-built facilities. Indeed it is more common for an ailing club to amalgamate with a stronger rir-al rather than face closure. This is evidence of increasing industry concenrration. which is common in maturing industries. Finally, the diverse origins, objectives, and memberships of ciubs means thai they may have vastly different ideas about how to compete and often farl to ai ord direct competition in their attempts to meet members' needs and their finan;ial objectives. For example, in geographic markets where numerous ciubs conp:t:. most engage in similar marketing ploys, such as reduced membership ie:s. 1u:k1 badge draws, $2 lunches, happy hours, and numerous other promotions. Thus. intense industry rivalry means that price cutting, continual impror-emenrs Ln phy sical

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facilities, and advertising slugfests are the rule rather than the exception and provide further indications of the industry's increasing maturity.

Maturing Customer Markets In addition to entry barriers and intra-industry rivalry, Porter (1980) identifies customers as a third competitive force with which industries must contend. As an industry matures, customer markets become more powerful, thus eroding the competitive strength of firms within the industry. Cook and Yale (1994) use diffusion theory to explain the spread and acceptance of gaming in the U.S. They cite five characteristics of products and services which determine the pace at which individuals will adopt a new concept and the rate at which an idea will diffuse throughout a society.

in the influencing the NSW competitive club gaming industry in the last few resulted from increasing substitute products for poker machines.

These factors are relative Perhaps greatest changes advantage, compatibility, forces complexity, trialability, and observability. In the U.S., the spread of gaming locations during the 1990s has decades have increased the accessibility and relative advantage of gaming compared to other leisure activities. This has increased gaming's compatibility with most Americans' lifestyles and reduced the perception of its remoteness and complexity due to the ability to try or observe others participating (Cook and Yale 1995:16). A similar pattern can be observed in NSW since the legalization of poker machines and the diffusion of electronic and other forms of gaming throughout society. The proliferation of easily accessible clubs where poker machines can be tried and observed, new technologies which have reduced the complexity of the games, and the introduction and acceptance of additional forms of gaming have changed the public attitude toward gaming to one of general acceptance and resulted in a more mature customer market. Furthermore, there is some evidence that Australians, as a society, have a greater propensity to gamble than members of comparable societies. Indeed, Australians are often referred to as a "nation of gamblers," with many historians attributing the Australian passion for gambling to our early convict history (Cumes, 1979; O'Hara, 1988). However, despite its long-standing popularity, gambling has met with varying degrees of opposition ever since colonization. Throughout the 1800s, considerable disquiet was expressed about gambling by the writers of that period (Caldwell, 1985:18). For example, a Sydney Morning Herald editorial on 5 February 1880 maintained that "with the exception perhaps of drunkenness, gambling----especially on horse-racing-is the greatest curse under which Australia suffers" (cited in Inglis, 1985:6). The most vocal and long-standing opposition to gambling in Australia has come from various church groups. For example, numerous publications of the ,\,.s:rclian CltristianWorld in the late 1800s referred to gambling as "the national i-

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vice." While the Catholic Church

saw no moral danger

in gambling (Inglis,

1985:12), the Protestant Churches were vehemently opposed to it on the grounds that gambling countered the Protestant work ethic and was basically covetous. Their objections to gambling were perhaps most strongly voiced in the years preceding and following the legalization of poker machines in NSW clubs, claiming the machines would increase the opportunity to gamble, preyed on the weak, presented grave economic dangers for the families of those who fell victim to them, and would lead to the legalization of other forms of gambling and further declines in public morality (Caldwell, 1972:100). Up until 1956, gambling in NSW was restricted largely to on-course betting, illegal poker machines in a relatively small number of clubs and hotels, State lotteries, and various unregulated and usually private games of chance. Thus, for the vast majority of people, most forms of gambling were largely inaccessible, carried some degree of social stigma, and were restricted mainly to criminal and wealthy sectors of society. The legalization of poker machines in NSW clubs and the huge growth in the number of clubs and machines suddenly made gambling accessible to all and removed much of the stigma attached to it. Furthermore, because poker machines are available in every sizeable town in NSW, are easy to play, can be readily tried and observed, and are a socially acceptable form of leisure activity, their diffusion throughout NSW society has been rapid. The average player is now more experienced, discerning, and better traveled than ever before. He or she is aware of the latest developments in poker machine design and technology, has expectations about percentage payouts, can shop around for superior physical facilities in which to play the machines, and is experienced in a variety of electronic gaming machines offered by hotels and casinos. Meanwhile, providers of poker machines can do little to maintain customer loyalty to the particular machines in their establishments. Little product differentiation between the price or other features of the machines is possible, all clubs have access to all brands of machines, and there are minimal switching costs for players choosing alternative venues. All of these factors point to the growing power of customer markets relative to suppliers of poker machine facilities and reflect the growing maturation of the industry.

Increasing Substitute Products Perhaps the greatest changes in competitive forces influencing the NSSr club gaming industry in the last few decades have resulted from increasing substirut: products for poker machines. The introduction of electronic gaming machines in a growing number of casinos, hotels, and interstate clubs has ied to the graduai erc sion of the NSW clubs' monopoly on electronic gaming. In addition, r'anous fo:r:. of non-machine gaming have become more diverse and accessible. meanins --:a: the Australian public now has a far wider choice in spendine its gamin: cclla:s Indeed, as shown in Figure 3, expenditure on NSW poker machrnes has tlu;:-:::: from around 90 percent of the NSW gaming market during the 1910s. :r a rc-.,. .-: about 79 percent, when Lotto, Instant Lottery and hotel electroni,- gami:r. :T.ichines were introduced in the 1980s, and then to around 84 percent rn ihe 1,39[s (Tasmanian Gaming Commission, 1995 :142).

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The monopoly on electronic gaming machines in Australia enjoyed by NSW clubs for twenty years ended n 1,976 with the introduction of poker machines in clubs in the Australian Capital Territory. Following this, real poker machine turn-

over declined in NSW clubs from A$1,867.4 million n 1975-J6 to A$1,762.2 million in 1977-78 (Tasmanian Gaming Commission,1995:215)' Whether this decline in turnover resulted directly from the new competition cannot be accurately ascertained. However, given the geographic proximity of NSW and the ACT, and noting the continual decline of real poker machine turnover in NSW until 1980-81 while turnover in the ACT more than doubled, it appears that interstate poker machine expenditure declined. In addition, the introduction of Lotto and Soccer Pools in NSW may have contributed to the decline in real NSW poker machine turnover between I976 and 1980. Indeed, when Soccer Pools were introduced in 1975-7Q they picked tp a2.7 percent share of the NSW gaming market while poker machines lost a 1.9 percent share. Similarly, the introduction of Lotto in 1979-80 attracted a 5.0 percent share of NSW gaming expenditure but was accompanied by a loss of a 3.5 percent share by poker machines (Tasmanian Gaming Commission, 1995: 142). Figure 3. NSW Poker Machine Expenditure as a Percentage of All NSW Gaming

Expenditure 1972-73 to 1993-94

100

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Source: The Tasrnanian Gaming Comrnissiory 1995:142.

Throughout the 1980s, fuither substitute gaming products became available u, ith apparent effects on NSW poker machine revenue and market share. For ex:rapie. the introduction of Instant Lotteries in NSW in 1982 was followed by a -:::rc1" ',:ar1', decline in real poker machine revenue from A$1,913.7 million in

::

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Club Gaming in New SouthWales, Australia: The Transition to Industry

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1980-81 to A$7,622.8 million by 1983-g4 (Tasmanian Gaming Commission, 1.995:215). Furthermore, the gain in market share by Instant Lotteries of 5 percent

to 6 percent for the first five years of operation was matched by a comparable decline in poker machine market share during this time (Tasmanian Gaming commission, r995:r42). Similarly, after gaming machines were introduced in NSW hotels in 1984 and Jupiters casino opened on the Gold coast in eueensland, real NSW poker machine revenues again declined in 1985-86 to A$1,616.4 million (Tasmanian Gaming commission, 1995:215). The real NSW poker machine revenues from 1972--:13 to L993-94 are shown in Figure 4, where the previously

mentioned fluctuations are apparent.

Figure 4.Introduction of Major Substitute products During the Lifecycle of the NSW Poker Machine Gaming Industry Gaming

VIC Poker

Machines

Machines

NSW

1992

Hoteis 7984

QLD fupiter's Casino 1985

Poker Machines

ACTdubs

1975

QLD Poker Machines, NSW Club

NSW Lotto 1979

NSW Soccer

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Keno 1991

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Thus, the decade 1975-85 witnessed the proliferation of gaming oprions in NSW to encompass soccer Pools, Lotto, Instant Lottery and electronic gamilg machines in hotels, to accompany existing state Lotteries and club poker machines. In addition, ACT poker machines and Jupiters Casino became ar-ailable only a few kilometers across the state borders. It appears that all of these neu' forms of gaming had an impact on the poker machine revenue and market share enjoyed by the NSW clubs. However, what is also apparent is that these nes.form_s of gambling have enjoyed a "honeymoon" period, where real revenues and marker shares were highest in the first few years after introduction. Follouing the mid1980s, some of the previously lost market share was recovered b1, poker machiles. while real revenue has steadily increased. Gaming Research & Review Joumal - Volume 3, Issue

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In the 1990s, a new wave of gaming options occurred. Poker machines were

introduced into Queensland and Victoria, casinos opened in Canberra and Melbourne, and ClubKeno commenced in NSW clubs. Interestingly, the State Government of Victoria (1994:92) has reported only a marginal impact to date on the turnover of the NSW southern border clubs from the introduction of poker machines in Victoria. Their report noted that the large NSW border clubs offer far greater and better quality entertainment and sporting facilities and have the resources to offer transport and other subsidies to attract Victorian visitors across the border. In addition, they reported that the NSW clubs had increased their marketing efforts to meet the competition. However, poker machines have been available in Victoria for a little over 3 years, with the total number of machines less than 16,000 (at November 1994). Nevertheless, the Review of Electronic Gaming Machines in Victoria has forecast that the mature market level of electronic gaming machines by the end of the decade will be between 43,000 and 45,000 machines in Victoria, increasing to 50,000 by 2005 (State Government of Victoria, 1995:6). Furthermore , the Review has recommended that the current limit of 105 machines per venue be lifted in clubs so that free market forces result in optimum efficiency in the industry (State Government of Victoria, 1994:9). Thus, it seems reasonable to assume that the Victorian club industry will be able to match the services, facilities, and resources of the larger NSW clubs in the near future and will be in a far stronger position to keep Victorian poker machine revenue within the state. In Queensland, the latest statistics identify just over 15,000 machines located at 1,000 sites, the majority of which are clubs (Department of Family Services and Aboriginal and Islander Affairs, 1995:25). Furthermore, most of the machines are concentrated in the southeastern corner ofthe state and so compete for the population base previously served by numerous large NSW clubs near the northern border. Indeed, two of the top six NSW clubs, based on annual liquor fees, are located on the northern border (RCA, 1,994:68). While no comprehensive research has been conducted into the impact of Queensland poker machines on interstate tourism, Iimited empirical evidence indicates that NSW poker machine revenue has been adversely affected. For example, in a study of the financial effects on the Twin Towns Services Club (the second top club in NSW based on annual liquor fees) following the introduction of poker machines into Queensland, Alcock re-

ports that only 26 percent of pre-gaming machine visitors from six Queensland clubs in a25}kmradius of Twin Towns still visited Twin Towns club and that the average visitation declined from 2.5 visits to 0.5 visits per year (1992:19). Furthermore, while Twin Towns enjoyed a 1.6 percent increase in machine profit in the three months prior to the introduction of the machines into Queensland compared to the same period in the previous year, the six months following witnessed a decline of 11.8 percent (Alcock, 1992:1,6-17). Furthermore, the club suffered an overall decline in revenue of A$1.2 million in the financial year following the introduction of Queensland poker machines (Twin Town Services Club Annual Report, 1993). The impact on the NSW club gaming industry of the increasing number of casinos in Austraiia is difficult to quantify. With a continuing increase in real \ SW poker machine turnover this decade, it seems that any impact so far has been a:s-.,doed. although NSW poker machine market share declined by 0.6 percent ,:-l:";:rE rhe openin_e of Jupiters Casino on the Gold Coast in 1985. However,

: "

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again a "honeymoon period" is apparent, with the effect on clubs "limited to curiosity . . . within twelve months all (NSW northern border) clubs were operating normally again" (Alcock, 1992:3). Additionally, a major threat to poker machine gaming in NSW clubs may be felt in September 1995 with the opening of the Sydney Harbour Casino in Sydney. Clearly, casinos provide yet another substitute product for poker machine gaming, with many providing poker machines as well as gaming tables. The RCA has been extremely vocal in its opposition to poker machines in the proposed Sydney casino and has won an assurance from the NSW Chief Secretary that the government will ensure a "level playing field" for casino and club gaming devices, which will prevent the casino from offering different gaming devices, bet limits, and prize limits to those offered by the clubs (RCA, 1994:4-5). Furthermore, the RCA has also negotiated a safety net scheme for clubs whereby those within a 10 km radius of the casino can be exempt from poker machine dufy or have payment deferred, if they can prove financial hardship (Li-

quor Administration Board,

As well as cooperation at the industry ner-el, groups of clubs in certain geographic locations have begun to

1994).

The impact of

the

Sydney casino on surrounding

clubs will not be known for some time. In Melbourne, poker machine revenue declined in a few nearby clubs immediately following the regions. opening of the Crown Casino, which attracts some 25,000 people per day (Carnie, 1994). However, once the novelty of the casino wears off, some club managers felt that revenues would recover. Indeed, one unexpected aid to Melbourne clubs has been the queues outside the casino on weekends. Faced with the prospect of waiting in cold evening conditions for up to two hours, many potential casino patrons opt for the clubs (cartwright, 1994:8). It will probably be many years before the true long-term impacts on the clubs of the Melboume and Sydney casinos are felt. Nevertheless, with both casinos located in the heart of their respective cities, it is clear that their primary markets are residents rather than tourists. It is difficult to know whether casino revenue will come from their existing gambling expenditure or other sources, such as their household budget or savings. The latest substitute gaming product developed is home gambling, using interactive television and personal computers. Future demand for home gambling using these technologies is likely to be substantial, with gaming, cable television. and personal computers currently three of the world's fastest growing indusrnes. Home gambling on offshore casino games, including slot machines' blackjack. and lotteries, has just become available in Australia via the lnternet. of u'hich there are an estimated one million users in Australia (Lecky, 1995:3). Furthermore, it is estimated that by the end of this year, about 30 percent of all Ausrra-iiaa homes will have a personal computer, of which 20 percent rviil have CD-RO\I drives (Packer, 1995:33). By June 1996, pay TV wiil allow Austrahans to plal casino games, buy lottery tickets, and place bets with the T.A'B u'hile u atching horse, harness, and dog races at home. Indeed, a report to a Federal Government committee, the Broadband Services Expert Group, estimates that home gambiing and betting will have an annual turnover of some 4.$36 billion b,v 2009 (cited in

ork together to promote clubs and ltilourism in various \q

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Murphy, 1995:76).If predictions hold true, the real winners in Australian home gambling will be the state governments, racing clubs, the TAB, media magnates, and the telephone companies, while clubs and pubs dependent on gambling will be amongst the losers. The challenge to existing gaming establishments may be to participate in the broadband networks to increase participants and prize money in gu.n"t such as keno and bingo, and to provide cable gambling stations for patrons io u"""rs (Murphy, 1995:76). However, while the new technologies may initially draw more patrons to gaming establishments, in the longer term, when pay TV and personal computers become more affordable, home gambling will provide a more convenient substitute to visiting a club to play the machines. Clubs may well need to promote the social, rather than monetary, aspects of gaming to maintain their patronage. ^

el,cng with the technological advances allowing home gambling, the ultimate form of interactive technology, virtual reality, may also present challenges for existing gambling establishments in the future. Vi*ual reality will make it possible to experience a night at the casino or a ride on the Melbourne Cup winner without stepping outside. Currently, the new wave of entertainment and leisure options *trictr will be unleashed by virtual reality is hindered by the costs involved, but cheaper technology is already being developed (Gigante,l'994).

The NSW Club Gaming IndustrY

Surviving MaturitY The preceding analysis of competitive forces indicates that the NSW club gaming industry has many of the characteristics of a maturing industry as identined UV Porter (1980:238-240). These include slowing growth resulting in more competition for market share; increased reliance on experienced, repeat buyers; gr"ut.. emphasis on cost and service to remain competitive; overcapacity of supto demand; limited possibilities for new product introductions; and pty "urnpui"d declining industry profit margins. The changes apparent in an industry's transition to maturity represent changes in its basic structure and in the competitive forces to which individual firms in the industry must respond. From the preceding analysis, it is speculated that a number of factors have a key role to play in the future competitive strength of the NSW club gaming industry. These will be discussed under ihe headings tf industry cooperation, strategic management, and marketing'

Cooperation as a Competitive Strength Much of the competitive strength of the NSW registered clubs industry to date has rested on the activities and collective bargaining power of the industry association, the Registered Clubs Association of NSW. This was formed in 1920 and has a culrent membership of more than 90 percent of NSW clubs (RCA, 1994:5) ' The Association is very active in providing industrial assistance, administrative 3:i ice. education. and training for its members, as well as enhancing industry :-::::...:::aticns rhrough reguiar meetings, conferences, and publications. Past by the Association have been - -i :- , -::-r-.s-cits and lobbving to government --: r:--:.::.:-:: leeislation. such as the legalization of poker ma-

Club Gaming in New South Wales, Austalia: The Transition to Industry Maturity

chines, the allowance of temporary members, larger denomination poker machines, the introduction of ClubKeno, and conditions pertaining to gaming in the Sydney casino, to name just a few (RCA, 1994:3-4). The current consideration by the

NSW state government to allow extended gaming facilities in hotels presents an additional challenge for the RCA. Clearly, the future competitiveness of the NSW club gaming industry will depend greatly on the actions of the RCA Gaming SubCommittee, established in 1991 to formulate Association policy and submissions on a range of gaming matters (RCA, 1994:4). These might include investigating the possibilities of embracing new gaming technologies, developing new or improved gaming products, and refocusing the marketing of club gaming to remain competitive in the fluctuating environment. As well as cooperation at the industry level, groups of clubs in certain geographic locations have begun to work together to promote clubs and tourism in various regions. Faced with the threat of losing interstate tourist trade when poker machines were introduced into Queensland and Victoria in 1991 and 1992 respectively, NSW clubs on the northern and southern borders embarked on some cooperative marketing campaigns. For example, the four largest clubs in Echuca-Moama,

on the NSW-Victorian border, launched a $250,000 advertising campaign on Melbourne television to attract tourists to the "Monte Carlo of the Murray," offering some 600 poker machines between them (Dettre, 1993). Similarly, television campaigns in southeast Queensland when poker machines were going on-line in the area reminded viewers that the Tweed clubs in northern NSW had much more to offer than just poker machines. At the same time, Tweed clubs, local tourist bodies, the Tweed Shire Council, and the two local Chambers of Commerce also joined forces in a new tourism campaign for the area (Andrews, 1992). Prior to 1991, the Tweed clubs were a major drawcard for the area, with "clubs and entertainment" citedby 10.2percentof visitors intheTweedVisitors' Survey (O'Connell et al, 1991) as the main drawcard which attracted them to the Tweed, while 56.7 percent of all visitors stated they would visit the Tweed clubs during their trip. While the success of such cooperative regional campaigns is difficult to assess, reasonably steady domestic and rising international tourist numbers in the NSW upper north coast region over the last five years (Bureau of Tourism Research, 1995:8) suggest that such campaigns may have helped to maintain the area's competitive position.

Marketing for Competitive Advantage Perhaps the greatest competitive strength of the NSW club gaming industn . compared to its competitors, lies in the fact that clubs are communiry-based organizations. Thus, their future competitiveness may well rely on their abiliry to posi-

tion themselves as socially responsible, nonprofit, and charify-oriented organizations and to capitalize on their close relationship with their customers and rhe common interests they share. By emphasizing community-based I'alues aad berefits, clubs have the opporfunity to solidify their relationships rvith their core member markets. That is, marketing strategies based on maintarning customer loi alq. through more personahzed products and services and appeals to shared vah-l:s may well motivate continued club patronage in preference to the impenonal offerings of other gaming establishments. lndeed, in recent telephone inten'ieu's u'irh a Gaming Research & Review Joumal - Volume 3, Issue

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small number of Sydney club managers prior to the opening of the Sydney Harbour Casino in September 1995 (Hing and Breen, 1996), many commented that the clubs will need to become better attuned to their local member and community needs and promote personal service to their members, in order to lessen the impact of the casino. Membership data and patron tracking systems can be used to establish reward systems for member loyalty and patronage. In addition to improved target marketing, NSW clubs may also benefit from closer attention to the product mix offered. With the clubs relying on poker machines for about 70 percent of their revenue, increased product diversification would appear an appropriate defensive strategy to follow. Many of the larger and more progressive clubs have expanded into motels, conference centers, resolts, and even theme parks, thus lessening their dependence on a prod-

uct facing increased substitution while also increasing the mix of facilities and services for members and visi tors. Other clubs may need

to follow suit to maintain their competitive edge. Furthermore, increased diver-

sification of the revenue base may also allow clubs to price the machines more

A preferred strategy may well be to focus on differentiating the club product from those of hotels, casinos, and home gambling by building on the community nature of the club product and the common interests of club members.

competitiveiy to maximize machine play and expenditure. Indeed, the Swan Report(1992), in an investigation of the likely effects of the Sydney casino on the registered club and hotel industries, noted that the price of gambling was a very significant, if little recognized, factor influencing where and on what games people gamble and that consumers respond reasonably predictably to gambling prices.

Strategic Management for Competitive Advantage Porter (I98A:24I) points out that the rapid growth of an emergent industry often masks strategic errors, allowing most, if not all, companies in the industry to survive. However, "strategic sloppiness" is generally exposed by industry maturity. For example, the closures and amalgamations of some smaller clubs, particularly bowling clubs, reflect their inability to sustain competitive advantage as the club industry has matured. Their overall strategy is proving defective, in that they are no longer offering products and services which are cheaper, a better quality, or different from those of competitors. Porter (1980:24i) maintains that industry maturity may force companies to confront, often for the first time, the need to choose among the three generic strategies of cost leadership, differentiation, and focus. For cost leadership to be an effective strategy, a great deal of managerial attention to cost control, efficientscale facilities, cost minimization in service, advertising, raw materials, and the like, is necessary, if unaffordable price-wars are to be avoided. However, with a major responsibiiity of the clubs being to provide facilities and services to their

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members, it is difficult to envisage success accruing from the increased standardization and streamlining of services needed if cost leadership is to be achieved. Alternatively, some clubs may more successfully differentiate their product in terms of facilities and services provided, image, decor, ambience, or service style. For example, some of the newer clubs, such as Twin Towns Banora Point Sporting Club, have an external appearance more akin to a resort operation, with landscaped grounds, swimming pools and the like, while the internal design hides poker machines well away from the foyer which resembles those typical of four and five star hotels. The largest club in NSW, Penrith Rugby League Club, offers

an unrivaled range of facilities, including 800 poker machines, tennis courts, a golf driving tange, cable skiing, water slides, a miniature railway, and over 200 motel and hotel rooms. In addition, planned extensions include a virtual reality simulator complex (Martin, 1996:28)' Focusing on a particular market niche is a further alternative and has been successfully implemented by some of the most exclusive businessmen's clubs in Sydney. Similarly, with Sydney experiencing increased numbers of immigrants from Asian countries, some clubs in communities with high Asian populations have successfully increased their appeal to these markets through targeting their promotions accordingly. However, with many of the state's clubs being located in small regional towns, there are limited opportunities for targeting narrow segments of the community. A prefened Stmtegy may well be to focus on differentiating the club product from those of hotels, casinos, and home gambling by building on the community nature of the club product and the common interests of club members. Thus, transition to industry maturity requires club management to take a strategic view of the business and will necessitate an emphasis on management educa-

tion, rather than the operational training that now dominates the club industry. One initiative that is attracting increasing numbers of participants is a Bachelor of Business in Club Management, offered by Southern Cross University to club managers and employees and jointty developed by the university, the Club Managers Association of Australia, the NSW Registered Clubs Association, and the Department of Technical and Further Education. While the course is only in its fourth year, with about 150 students, evaluations have revealed that the course has been successful in improving a number of workplace management practices in the club industry (Breen and Edwards-Williams, 1995). This is a positive first step towards the more professional management needed to prosper in an increasingly competitive environment.

Conclusion In summary, a review of the life cycle of the NSW club gaming industry, in terms of the changing competitive forces of potential entrants, industry rivals, customer markets, and substitute products, provides evidence that the industry has evolved from an emergent to a maturing industry. As the industry continues to mature, club management needs to adapt to these intensifying competitive forces if club gaming is to maintain its level of appeal and profitability. Possible responses to this challenge include a continued high level of industry cooperation. a Gaming Research & Review Joumal - Volume 3, Issue

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more strategic approach to management, and a refocusing of the club industry's marketing appeal to the community. Like all products, gaming does have a saturation point, beyond which new products tend to cannibalize existing products. While the overall gambling industry in Australia is still experiencing steady growth, the NSW registered clubs industry needs to ensure that growth in new gaming products is not at the expense ofclub poker machine revenues.

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References Alcock, Keith, M. (1992). The Financial Effects on Twin Towns Services Club Following the Introduction of Gaming Machines into Queensland, unpublished Graduating Seminar Report, University of New England-Northem Rivers, Lismore. Andrews, Maicolm (1992, August). Tweed Clubs Tighten Belts and Blame Recession. Club Managemenr. pp.24. Breen, Helen and Edwards-Williams, Kerry (i995). The Club Scene: How a University is Helping to Raise the Standards. Paper presented at the Higher Education Research and Development Society of Australia Conference, Rockhampton, Queensland.

Bureau ofTourism Research (1995). Australian and InternationalVisitors to Regions ofNew South Wales.Bureav of Tourism Research, Canberra.

Caldwell, Geoffrey (1972). Leisure Co-Operatives: The Institutionalization of Gambling and the Growth of Large Leisure Organizations in New South Wales, unpublished PhD thesis, Australian National University, Canberra.

Caldwell, Geoffrey (1985). Some Historical and Socioiogical Characteristics of Australian Gambling. In Geoffrey Caldwell, Brian Haig, Mark Dickerson and L. Sylvan (Eds), Gambling in AustraIia (pp. 18---2'7). Sydney: Southwood Press Pty. Ltd. Carnie, Ken (1994). The Crown Casino: The First 125 Days. Paper presented at the Gambling and Commercial Gaming National Conference, Melbourne. Cartwdghr, Darren (1!94, October). Clubs Fight Back to Lessen Casino

Imprct

Club Marngement, p.8.

Cook, Roy A. and Yale, Laura J. (1994). Changes in Gaming and Gaming Participants in the United States. GerrnNc Rssrencs lNo Revrew JounNrl, L(2): 15-24. Cumes, J.W.C. (1979). Leisure Times in Early Australia' Longman, Cheshire Reed.

Department of Family Services and Aboriginal and Islander Affairs (1995) . Report of the First Year of the Study into the Social and Economic Impact of the Introduction of Gaming Machines to IsQueensland Clubs and Hotels. Brisbane: Department of Family Services and Aboriginal and lander Affairs, Department of Gaming and Racing (1995). New South Wales Gaming Analysis. Sydney: Department of Gaming and Racing. Dettre, Andrew (1993, March). Border Region Clubs Watch and Wait. Club Managemenr, pp'

2i-

28. Gigante, Michael (1994). Gambling Technology in the Ist Cenury: Towards a Virtual Realiry. Pa?er presented at the Gambling and Commercial Gaming National Conference, Melbourne

Hing, Nerilee and Breen, Helen (1996). Poker Machine Gaming in NSW Registerei Ci',r:s: Ga:nbling on the Impacts of Substitute Products. lt Proceedings from the Australian Tounsm. anc If os:itality ResearchConference (pp. 185-195), Coffs Harbour'

Hoy, Anthony (1996, April 13). Seniors Swap Pokie Sprees for Big Time. The S1e.'q;

Jlor-ttt

Herald, p. 13. Inglis, Ken (1985). Gambling and Culture in Australia. In Geoffre-u- Calduell. B:rar Haig. \Iarl\ Dickerson and L. Sylvan (Eds), Gambling in Australia (pp. 5-17). Sydney: Souths'ood hess P1 Ltd. Gaming Research & Review Joumal - Volume 3, Issue

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